Regulating Insurance: The Grades Are In

Many factors, including demographics, economic conditions and the litigation landscape, can affect an insurer’s decision to operate in or to continue doing business in a particular state. The regulatory environment is another important consideration for insurers.

According to the 2012 Insurance Regulation Report Card from non-profit think tank R Street Institute, Vermont, Illinois and Ohio had the best property/casualty insurance regulatory environments in the U.S. this year, receiving ‘A+’ grades.

At the other end of the scale, Florida was the only state to receive a failing grade, falling more than two standard deviations below the mean (the mean was -3.1).

Other states falling more than one standard deviation below the mean include Alaska, Michigan, New York, California, Massachusetts and Texas.

Interestingly enough the best state, Vermont, only scored 26 out of a maximum possible score of 55.

R Street based its assessment of states on 14 objective metrics, including:

– the concentration of their home and auto insurance markets and relative size of their residual markets

– the effectiveness of state solvency and fraud regulation

– the transparency and politicization of insurance regulation

– the tax and fee burdens placed on insurance markets and the proportion of fees used to support insurance regulation

– the relative freedom granted to insurers to set risk-based rates, including through the use of credit and territorial information

A press release cites the report’s author R.J. Lehmann saying:

Overall, in 2011 and early 2012, we saw continued modest trends toward greater consumer and business freedom in the homeowners and automobile insurance markets, as well as real efforts in some states to scale back, or otherwise place on more sound financial footing, residual insurance markets and state-run insurance entities.†

Those are positive trends, and we hope this report card encourages other states to move forward in that direction over the next year.†

Stay tuned.

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